IMAGE DISTRIBUTED FOR GILLETTE - Fusion ProGlide Stylers are seen during Gillette eMO'gency Styler Tour in Times Square on Tuesday, Nov. 13, 2012 in New York. ASSOCIATED PRESS

The California Supreme Court soon will decide whether to review a case pitting the state Franchise Tax Board against the Gillette Co. and other out-of-state companies.

If the state's highest court does not take the case, the tax board could be on the hook for $750 million in tax rebates to Gillette, the razor giant owned by Ohio-based Procter & Gamble, and other out-of-state companies doing business in this state.

Gillette, along with Kimberly-Clark, Sigma-Aldrich, RB Holdings and Jones Apparel Group, sued California in 2010, asserting that the state abrogated the 1967 Multistate Tax Compact, an agreement that made corporate taxation uniform among the states.

The MTC was created to ensure that state taxes imposed on multistate businesses are "fairly apportioned;" that companies aren't forced to pay tax on the same income to more than one state.

The compact relies upon a longstanding three-factor formula – by which companies like Gillette calculate how much tax they owe in a given state – based on equal weighting of property, payroll and sales receipts.

California signed onto the MTC in 1974. It applied the compact's three-factor formula until 1993, when the Legislature revised the formula, double-weighting the sales factor in calculating tax liability.

Making matters more complicated, and less equitable, lawmakers decided the new "four-factor" formula would not apply to companies that derived more than half their gross receipts from financial, agricultural or "extractive" activities (whatever those are). They would continue to be taxed under the three-factor formula.

Gillette and the other plaintiffs paid California corporate taxes based on the four-factor formula enforced by the Franchise Tax Board, but filed for refunds under the MTC's three-factor formula.

When they were denied by the FTB, they asked the courts to determine whether California was bound by its 1974 "ratification and approval" of the multistate agreement.

A San Francisco Superior Court sided with the state; then an appellate court panel in October unanimously ruled in favor of Gillette and its fellow plaintiffs, declaring that the Legislature could not "override and eliminate" the section of compact that allowed multistate companies to elect the three-factor formula.

We agree with the appellate court's decision, which is consistent with the U.S. Constitution's Commerce Clause, and hope that the state Supreme Court denies the Franchise Tax Board's appeal.

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